How well is your pricing strategy aligned with the prestige of your brand? Prestige pricing offers unique opportunities to expand your profitability and attach positive connotations to your brand.
Prestige pricing is a strategic marketing approach focused on building a strong brand identity. Specifically, businesses set higher prices to match the prestigious branding of their product or service.
The goal of prestige pricing strategy is to create perceptions of:
- Higher than average quality
- Exclusivity
- Luxury
With prestige pricing, you are competing in your market over brand positioning. You are not competing on pricing alone. This works for many companies for whom it does not make sense to start a “race to the bottom”.
Instead of constantly struggling to be the more affordable option, you employ this strategy to be the superior option and charge accordingly.
Who is prestige pricing for?
Prestige pricing requires that your research and communications be targeted at specific customer segments. These strategies are aimed at affluent and status-oriented customers. However, prestige pricing can also attract middle-class customers who are passionate about what it is you are selling and who are willing to pay a higher price for excellence.
As a strategy, prestige pricing relies on the assumption that some customer segments are willing to pay more than others.
So, this strategy is for any business that wants to foster a brand image of excellence, luxury, and exclusivity. In this case, the high price point is not a negative for customers. Instead, the high price is another reinforcer of the superior qualities of your product or service.
From the customer’s point of view, prestige pricing is for discerning customers. Again, these can simply be very status-oriented customers. Alternatively, they might simply be customers seeking the highest quality product or service in your industry.
How prestige pricing works
Prestige pricing does not focus much on the economics of production and profit. You are not setting your prices based on the variable and fixed costs of production or an “ideal” profit margin. Rather, you are finding out the price that the most valuable customer segments are willing to pay.
Prestige pricing strategy requirements
The prestige pricing requirements are:
- A brand identity based on superior quality, luxury, and exclusivity
- Research into customer segments with a focus on big spenders
- Careful management of customer perceptions
However, only a portion of the customers in your industry will view your premium pricing as “justifiable”. Your job is to identify those customer segments and win them over.
Any successful pricing strategy requires a strong understanding of your target audience. Prestige pricing is no different. The distinction lies solely in the targeting of specific customer segments.
Managing customer perceptions
It is essential to consider the price sensitivity of different customer segments. Each customer segment will have its own perception of value.
To illustrate, envision a case where a company identifies three specific segments of customers:
- Values low prices above all
- Values superior quality and customer service above all
- Values saving money above all
These three customer segments will respond very differently to prestige pricing. Segment number two is the one that will most appreciate it. Segment number one will appreciate it the least. Segment number three will largely ignore your brand but may still appreciate sales events and other promotional strategies.
Simon-Kucher can conduct comprehensive market research and analysis to help you understand your competitive landscape, customer preferences, and willingness to pay for premium products and services.
With such knowledge, you can develop compelling value propositions for your premium offerings.
Brand alignment
Your sales and marketing teams will need to adjust their tactics to successfully sell prestige. This normally means sales training that focuses on selling value instead of selling based on price.
When your brand isn’t already aligned with luxury and higher quality, you must adjust it first. Think about what steps you must take to get to a point where prestige prices can realistically draw good profits. These include:
- Crafting a compelling brand story that highlights legacy and unique value proposition and builds emotional connection.
- Ensuring exceptional quality and experience through intricate design, innovation, superior craftsmanship and personalized customer service.
- Building brand exclusivity and status by creating limited availability and scarcity, partnering with high-end retailers, and generating celebrity endorsements and influencer marketing.
Prestige pricing advantages
Now that we understand how prestige pricing works, let's look over the benefits businesses gain from it.
Higher profit margins
Prestige pricing can be extraordinarily profitable. When you use this strategy, you disconnect your prices from your production and other costs. This can lead to a situation where your profit margins are much higher than you could achieve with alternative pricing strategies.
Competitive differentiation
If you try to outcompete your competitors by undercutting them with low prices, it is easy for them to respond in kind. Price wars are bad for everyone involved and are less likely to result in positive outcomes for you.
On the other hand, prestige is not something that can be easily copied. By adopting a specific prestige-based brand, you are engaging in a different type of competition. The customers you are attracting are valuable and loyal.
Improved value
The process of engaging in a prestige pricing strategy requires you to genuinely improve the value of your offerings. The benefits of this can go well beyond charging higher prices. You also establish yourself as the brand that best delivers value to customers in your market.
If prestige pricing sounds like the right next step for your business, don’t hesitate to reach out to us. We can help you establish and maintain an optimal prestige pricing strategy that can propel your business towards better growth.
